3 Tips for Starting a Drop-ship Online Store
An ecommerce entrepreneur with passion and great supplier relationships can earn good profits without making large investments or holding lots of product inventory.
Drop shipping allows retailers to sell products without holding actual inventory. When a customer places an online order with a drop ship retailer, the retailer passes that order on to the product’s manufacturer or wholesaler, which then ships the product directly to the customer. The retailer does not pay the manufacturer or wholesaler until the customer has already paid for the product, nearly eliminating the need to hold inventory or make significant financial investments to start an online retail business.
Drop shipping has several advantages, including making it easier to offer a broad range of products and come to market more quickly. I’ve addressed the advantages of drop shipping here previously, in “5 Reasons to Consider Drop Shipping.”
Finding Suppliers Is a Challenge
The challenge with the drop shipping business model is that the retailer must trust the wholesale distributor or manufacturer to ship the order promptly and correctly. This means that the retailer needs to trust that vendor explicitly. What’s more, finding good manufacturers or distributors interested in taking on the problems associated with individual order fulfillment is also difficult since many product makers or distributors are not actually interested in dealing with direct-to-consumer orders.
What follows are three tips aimed at helping an entrepreneur find a good supplier that is both willing to drop ship and capable of providing good service to both the ultimate consumer and the retailer.
Tip 1: Choose Products You’re Passionate About
Since the drop ship model effectively outsources all order fulfillment to a wholesaler, the retailer adds value, if you will, through marketing and customer service.
Ecommerce marketing often includes buying pay-per-click advertising, writing blog posts, engaging potential customers on social media, and nurturing relationships with loyal shoppers. In practice, these tasks mean that the drop shipping ecommerce entrepreneur is going to spend a lot of time thinking about, talking about, and writing about the industry served.
These tasks are easier if the entrepreneur is already passionate about the topic. For example, if an entrepreneur loves golf or fly fishing, it might make sense to seek out products related to those activities.
Consider making a list of the things you like or love to do. Call it a passion or interest list. The items on this list can be anything activity — think gardening, watching professional football, knitting, or investing. Just make a list.
Next, look for products that are related to the activities on your passion or interest list. When you find an interest that has related products that you believe you can sell, start to contact the manufacturers of those products to learn if they offer drop-shipping services or if they have distributors that offer drop-shipping services.
Tip 2: Choose Suppliers Carefully
I have to be a bit careful with this analogy, because of what I am going to discuss in Tip 3 below. But it can be helpful to think of choosing a drop-shipping supplier like choosing a spouse.
You want to find a manufacturer or wholesale distributor to have a long and mutually beneficial relationship with. This vendor will be taking care of your customers, and to some extent impacting your business success.
Andrew Youderian, author of the ebook Profitable Ecommerce, recommends having one or more long phone conversations with a representative from any potential supplier. You need to know that you can work with this supplier on an on-going basis.
Tip 3: Choose More Than One Supplier if You Can
You want to have good supplier relationship, but the marriage analogy from Tip. No 2 aside, it can be a really helpful idea to have more than one wholesale supplier for each of the products that you carry and sell.
One of the significant drawbacks to the drop-shipping model is that the retailer does not have direct control over product inventory. Imagine that a drop-shipping distributor has five Gibson Guitars in stock, and gets orders for 10 guitars — five from a brick-and-mortar retail and five individual orders from five different retailers. The distributor cannot fulfill all of the orders, so some customers are going to be disappointed.
If the retailer has a second source for Gibson Guitars, that retailer may still be able to fulfill the order.
In addition, having multiple suppliers may result in lower shipping costs and shorter delivery times. For example, if a retailer has a supplier in California and a supplier in New Jersey, it makes since to have the California-based company ship to customers in the western half of the U.S. The rates should be lower and the orders should arrive sooner.